Asian Finance Bank and AmanahRaya Investment Bank Labuan have entered into an innovative Islamic forward binding transaction and agreed to establish an Islamic marine fund that is intended to raise USD250m.
Asian Finance Bank is an Islamic bank backed by a consortium made up of Qatar Islamic Bank (70 per cent), Saudi Arabia's RUSD Investment Bank (20 per cent) and Kuwait-based Global Investment House (10 per cent), while AmanahRaya Investment Bank Labuan is a wholly-owned subsidiary of the Malaysian state-owned trust company Amanah Raya established in the offshore financial centre of Labuan earlier this year.
According to the banks, the Islamic forward binding transaction, or AFB-i, is a contractual obligation by two parties to pay, on a forward value date, the price of a commodity purchased on the transaction date, to aid the exchange of currencies between the two contracting parties.
The transaction is based on the Shariah contract of Bai Muajjal, in which the bank's customer purchases assets with a deferred payment on a specific time in the future and the delivery of the assets on a spot basis.
'For AmanahRaya this transaction is important so that we can book in future foreign currency receivables at a favourable exchange rate as part of the hedging mechanism,' says AmanahRaya chairman Arshad Ayub. Although Islamic hedging instruments already exist in the market, AFB-i is the first such product to adopt the Bai Muajjal principle.
'We are pleased to have this opportunity to work with a strong partner like AmanahRaya to launch an innovative product like AFB-I,' says Asian Finance Bank chief executive Faisal Al Showaikh.
The banks have also agreed to develop an Islamic marine fund investing in completed and non-completed vessels such as dry bulk carriers, tankers, anchor handlers, crew boats, equipment barges and other support vessels for marine activities. The fund is designed as a core-plus vehicle that invests in performance-proven vessels that show characteristics for capital and income enhancement through redeployment strategies.
It endeavours to achieve medium- to long-term stable income and capital growth by acquiring high quality and income-generating vessels backed with charters from major oil companies and reliable operators. The fund, the first of its kind, is based on the Ijarah-backed structure is expected to generate an annual internal rate of return of between 12 and 15 per cent.
Abdul Latif Abdullah from Penang Port, who has decades of shipping experience, has been appointed chairman of the fund. 'The Islamic marine fund will provide opportunities for institutional and sophisticated retail investors globally to participate in the growth of the marine sector,' he says. 'Through this fund investors will have access to Shariah-compliant marine vessels that could generate attractive medium to long-term returns.'
Al Showaikh says: 'The investment objective is to assemble a portfolio of quality ocean-going and coastal vessels operating within Malaysian waters as well as worldwide. This fund is the first of its kind in Malaysia and the region, and reflects Asian Finance Bank's objective to introduce new Shariah-compliant products. We plan to leverage our access to the Gulf Co-operation Council market to bring in Middle East investors.'
'The fund will be of a 10-year tenure, extendable for two periods of one year each, and is targeted to raise up to USD250m to finance the purchase of the initial fleet. We are working closely with the technical adviser to identify good potential fleets to purchase.'